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President Trump signed into law a bipartisan budget deal that will keep the government funded for two years and eliminate the constant fear of shutdowns. Senate Republicans and Democrats agreed to provide a massive boost to spending levels for Pentagon and domestic programs, including infrastructure. Trump has already urged for an uptick in defense spending to build nuclear arsenal, while raised concerns over the nation’s “crumbling infrastructure.”

As outlays are expected to increase for defense and infrastructure programs, it seems wise to invest in such areas for healthy returns.

The 2-Year Pact

Trump deal was signed on Feb 9, following the approval of the budget bill in Congress. The spending pact suspends a 2011 budget law that had set hard caps on discretionary outlays and was backed by Conservatives.

Fiscal conservative Rand Paul, R-Ky delayed the vote in the Senate resulting in a partial government shutdown. Nonetheless, the Senate passed the measure 71-28 and the shutdown was averted. The bill also faced opposition from conservatives in the House. Minority Leader Nancy Pelosi tried to delay the vote in the House. But, the House eventually passed the measure 240-186.

The Bipartisan Budget Act accomplished a few long-awaited priorities. U.S. Senate leaders reached a deal to raise federal spending by almost $300 billion for the next two years to address all kinds of fiscal issues that have been plaguing Washington for years.

Congress has time and again voted to raise budget caps. Earlier, there have been two bipartisan deals to uplift caps by billions of dollars. The first was signed in 2013, forged between Paul Ryan and Patty Murray, while the second was in 2015. However, both the deals that have extended through fiscal 2017 have expired.

Details on the Deal

The spending pact will raise defense budget by $165 billion over two years. While spending caps will be lifted by $80 billion in the current fiscal, $85 billion will be hiked next year. This in turn will help the military receive a minimum of $1.4 trillion through September 2019 to help buy fighter jets, ships and other equipment. This level of funding is also expected to improve the country’s missiles and nuclear bombers.

The bipartisan deal is a major victory for military hawks. After all, Republicans had to battle fiscal conservatives in their own party for years to lift restrictions on defense outlays. Moreover, defense spending was raised in 2010 last. Since then, military commanders faced strict restriction on annual defense spending by the Budget Control Act, a 2011 deal reached by then-President Barack Obama and congressional Republicans.

The budget deal, in the meantime, will boost domestic spending by hundreds of billions of dollars. Nondefense spending caps will be raised by $63 billion in the current fiscal, while $68 billion will be increased next year. Out of such spending, a large chunk will be used for infrastructural programs. About $20 billion will be used for infrastructure programs such as surface transportation, rural water, wastewater systems, to name a few, over the two years.

Trump Calls for Higher Defense, Infrastructure Outlays

Trump has already called on Congress to put an end to caps on defense spending so that the United States can modernize its nuclear arsenal. He said that better nuclear weapons are required to counter rogue organizations, terror outfits and countries such as China and Russia.

After signing the budget pact, Trump tweeted “military will now be stronger than ever before. We love and need our Military and gave them everything — and more. First time this has happened in a long time. Also means JOBS, JOBS, JOBS!”

Trump has also urged for huge infrastructure spending. He wants to rebuild infrastructure, including roads, bridges, highways and railways. This is something that he has been promising since his campaign days. He wants the Congress to pass a legislation to stimulate a minimum of $1.5 trillion in new infrastructure outlays. He wants the approval process to reduce to two years if not one.

5 Top Gainers

The two-year budget deal will provide a significant boost to spending levels for both defense and nondefense programs like infrastructure. Given the positives, doubling down on the hottest stocks from such areas seems judicious. We have, thus, chosen five stocks that flaunt a Zacks Rank #1 (Strong Buy) or 2 (Buy).

The Boeing Company manufactures and sells commercial jetliners, military aircraft, satellites, missile defense, human space flight, and launch systems and services. The stock has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings rose almost 23% in the last 90 days. The company, which is part of the Aerospace - Defense industry, is expected to give a solid return of 35.8% and 12.9% in the current quarter and year, respectively.

Lockheed Martin Corp., a security and aerospace company, engages in the research, manufacture, integration, and sustainment of technology systems, products, and services. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings rose 15.8% in the last 90 days. Lockheed Martin, which is part of the Aerospace - Defense industry, is expected to yield a return of 13% and 16.1% in the current quarter and year, respectively.

Huntington Ingalls Industries, Inc. designs, builds and maintains nuclear and non-nuclear ships for the U.S. Navy and Coast Guard. The stock has a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings rose 0.7% in the last 90 days. The stock, which is part of the Aerospace - Defense industry, is expected to give a whopping return of 79.7% and 19.1% in the next quarter and current year, respectively. You can see the complete list of today’s Zacks #1 Rank stocks here.

Granite Construction Incorporated — a Zacks Rank #2 company — operates as a heavy civil contractor and a construction materials producer. The Zacks Consensus Estimate for its current-year earnings rose 3.9% in the last 90 days. Granite Construction, which is part of the Building Products - Heavy Construction industry, is expected to return 70% and 11.3% in the current quarter and year, respectively.

MasTec, Inc. an infrastructure construction company that provides engineering, building, installation, maintenance, and upgrade services for utility firms, primarily in the United States. The company has a Zacks Rank #2. The Zacks Consensus Estimate for its current-year earnings rose 8.7% in the last 90 days. The company, which is part of the Building Products - Heavy Construction industry, is expected to give a promising return of 47.9% in 2018.

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Continuous coverage is provided for a universe of 1,150 publicly traded stocks. Our analysts are organized by industry which gives them keen insights to developments that affect company profits and stock performance. Recommendations and target prices are six-month time horizons.

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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.

Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.

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